What's behind Wal-Mart's push for smaller stores?

Chicago is a testing ground

March 23, 2011

It took several years, but Wal-Mart won a PR battle against unions to build several stores in Chicago. One way it did that was to say Chicago had plenty of retail opportunities for everyone — for Wal-Mart’s big-box stores and for smaller shops to fill in the gap. But now the world’s largest retailer is testing smaller, convenience-style stores of its own, and many wonder if these so-called ‘baby Wal-Marts’ will alter the city’s retail landscape.

I met Ald. Howard Brookins on W. 83rd Street.

There’s empty land and storefronts now but this spring Wal-Mart could dominate the footprint — and not with just one huge store.

There will likely be a big-box building, but also an express store — the size of a 7-Eleven.

I asked Alderman Brookins if two Wal-Marts are toomany.

BROOKINS: Well some type of convenience store would’ve went here anyway. So I don’t see it as being competition. There are just people who will not go into a supercenter if they want to grab one or two items. So right now, I think that it will be okay and we’ll see.

One of the biggest criticisms hurled against Wal-Mart is that it wipes out nearby small businesses.

Brookins says that’s not happening here.

BROOKINS: Small businesses had six years to try to lease any of these spaces and we’ve got nothing. It appears that Wal-Mart is clearly the one that’s going to drive the market and traffic to this particular area.

And, Brookins says, the situation’s not all bad for small business.

Wal-Mart has promised to support local entrepreneurs. Brookins says a hair salon and optometrist are among vendors that are supposed to have space in the supercenter.

But the Arkansas-based company did not respond to requests for interviews about how smaller stores square with that.

One person who’s thought about why Wal-Mart’s changing strategy is R.J. Hottovy, the director of consumer research for Morningstar. He says Wal-Mart has saturated rural and suburban areas, and smaller stores will make Wal-Mart viable in land-locked urban areas.

HOTTOVY: What we’ve seen in the recession was that Wal-Mart did lose market share to dollar stores and I think that this is a way for them to recapture that market share.

Hottovy says the downside is that small businesses can’t directly face Wal-Mart, which tends to have lower prices. Smaller businesses might have to find niche markets.

But there are business people who feel that isn’t necessarily bad for neighborhoods.

Melinda Kelly is executive director of the Chatham Business Association.

KELLY: It does have to be managed and tempered with some initiatives to make sure we protect the community, protect the small businesses. Wal-Mart has a huge buying power. That buying power that they have the ability to share with the community is crucial to bring it to the community and to be quite honest some stores don’t have that kind of buying power.

Neighborhood protection could include having Wal-Mart stock its shelves with locally-produced products and drawing up community benefits agreements.

But these measures haven’t been enough for Chicago unions.

They wanted a different kind of agreement. Organizers waged a political fight for a big-box living wage, designed to make Wal-Mart pay higher wages to employees. Unions lost that fight at city hall, and Chicago alderman began to approve Wal-Mart stores.

Amisha Patel was part of that union push. She heads Grassroots Collaborative, a coalition of community and labor organizations. Patel says Wal-Mart’s latest small-store strategy doesn’t surprise her.

PATEL: That’s their plan to do these different-sized stores. Getting their name Wal-Mart out there in these different neighborhoods from Presidential Towers to Englewood, right? Their idea is really to just brand themselves and to get themselves out there so it becomes normalized that there’s a Wal-Mart on every corner, right? Which I think is the direction they’re moving in.

Patel says union and community organizers will still press the issue of wages at Wal-Mart stores, regardless of how big or small those stores will be.

It’s likely Patel will be busy. Wal-Mart’s investment in Chicago includes six more stores. Two will be express marts.